Paper Money

Federal Reserve appointee dislikes paper money?

The Bureau of Engraving and Printing, the agency that prints Federal Reserve notes, offers bags of shredded currency as novelty products. A nominee to the Federal Reserve Board reportedly has suggested eliminating or reducing the amount of paper money in circulation.

Original images courtesy of Bureau of Engraving and Printing.

The newest appointment to the Board of Governors of the Federal Reserve System does not like paper money.

Marvin Goodfriend, a professor of economics at Carnegie Mellon University, was nominated to a 14-year term by President Donald Trump on Nov. 29. Among the Federal Reserve’s responsibilities are deciding how much paper money to print, placing orders for it, and distributing it to the 12 Federal Reserve banks.

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A Dec. 5 story in Bloomberg Business Week by Peter Coy, as well as in a few other online financial journals, focused on Goodfriend’s belief that abolishing or reducing the status of paper currency would make it easier for the Fed to lower interest rates to less than zero. He thinks he existence of cash makes this harder to do because, as soon as rates are lowered to subzero levels, people would logically withdraw cash from their bank accounts, which now would have become income-reducing, and keep it in their mattresses and elsewhere. He therefore proposes that high-denomination bills could be phased out, and if that is not enough, he says paper money could be abolished. He has also written that if negative interest rates on deposits were in force, the incentive would be strong to spend whatever was in an individual’s savings account.

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Another of his proposed suggestions is currency cards, which are not credit or debit cards, but ones linked to real money, straight from the Fed, the value of which the Fed could control electronically.

Goodfriend’s ideas are well-known, are not a joke, and have not gone without comment. The Mises Institute, a think tank espousing the Austrian school of economics and libertarian political theory, asked on Dec. 1, “Is Marvin Goodfriend the Worst Fed Nominee of All Time?” 

Earlier Mises said, “Given his radical views on monetary policy, it’s not hyperbole to suggest that Goodfriend’s nomination would represent a genuine danger to the economic well being of every American citizen — or at least those outside of the financial services industry.” 

Goodfriend’s nomination requires Senate confirmation

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